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RBA governor justifies interest rate hold

The RBA has kept the cash rate steady at 4.35 per cent at its March meeting.

The Reserve Bank of Australia (RBA) has left the cash rate on hold at 4.35 per cent today, with experts split on how soon mortgage holders can expect interest rate relief.

In its post-meeting statement, the RBA board said inflation was moderating in line with its latest forecasts but "remains high", warning the "economic outlook remains uncertain".

"The headline monthly CPI indicator was steady at 3.4 per cent over the year to January, with momentum easing over recent months, driven by moderating goods inflation," the board said.

RBA governor Michele Bullock and people, interest rates decision.
The RBA has kept interest rates on hold at its March meeting, with borrowers now eagerly awaiting a rate cut. (Source: AAP)

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Inflation remained steady in the 12 months to January, unchanged from December. The RBA expects inflation will fall to its 2-3 per cent target range in 2025 and reach the midpoint in 2026.

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The Chinese economy is slowing and the board noted the "high level of uncertainty" around the implications that, or even conflicts in Ukraine or the Middle East, meant it would not "rule anything in our out" in terms of future interest rate hikes or cuts.

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"The board will rely upon the data and the evolving assessment of risks. The board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market," it said.

However, economist Stephen Koukoulas told Yahoo Finance a subtle change in the central bank's wording could be a sign cuts are closer than many are predicting.

"No longer did it say that it considered increasing interest rates. Rather it moved to a position where in reference to the outlook for policy it “would not rule anything in or out”," Koukoulas wrote.

In other words, there was, at this stage, an even risk that the next move interest rates would be down as well as up."

In her second address after a board decision, RBA governor Michele Bullock expressed the need for "much more confidence" that inflation was back into the target band to consider a rate cut.

“The central forecast have it not coming back into the band until 2025. If we were to see some acceleration and get some more confidence that we are over-achieving there then possible rate cuts might be something on the agenda," Bullock said.

“At the moment we are not seeing that and we are in a position where we are cautious and want to wait and see.”

Borrowers waiting for rate relief

Finder head of consumer research Graham Cooke said strapped households were eagerly awaiting interest rate cuts and lower mortgage repayments.

“This welcome news comes after a prolonged period of financial strain, but many homeowners are hoping for a lower cash rate,” Cooke said.

“The next few months will be crucial in determining the trajectory of future interest rates.”

The cash rate has skyrocketed from a record low of 0.10 per cent to a 12-year high of 4.35 per cent since May 2022, adding $1,394 per month to the average $615,174 mortgage. That works out to an average annual increase of $16,728.

CreditorWatch chief economist Anneke Thompson said the decision came as "no surprise", given the lack of meaningful data pointing to the economy continuing to overheat and threaten inflation rises.

"In fact, National Accounts data released earlier in the month provided solid evidence that monetary policy tightening is having its intended impact on domestic demand," Thompson said.

"Gross Domestic Product (GDP) only grew by 0.2 per cent over the December quarter, and by 1.5 per cent through the year. On a per capita basis, GDP has been negative now for three straight quarters, indicating that we are in a ‘per capita’ recession."

When will interest rates come down?

Economists remain split on when the RBA will start cutting rates, with many predicting it won’t be until the second half of the year.

Big Four banks’ predictions for 2024:

  • CBA: Three cuts in 2024 with the first in September

  • Westpac: Two cuts in 2024 with the first in September

  • NAB: One cut in 2024 in November

  • ANZ: One cut in 2024 in the fourth quarter

In Finder’s latest Cash Rate Survey, half of the panel of experts forecast the RBA would make its first cut before September, while the other half believed it would come later.

One in four experts had a grimmer view, forecasting mortgage holders would have to wait until 2025 for the RBA to start cutting rates.

On Monday, money markets were fully priced for a cut by November. Previously, a cut in September was priced in.

Even if the RBA does cut interest rates, experts have warned the major banks may not pass on any cash rate cuts in full to mortgage holders.

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